SIMPLE IRA Contribution Limits

The SIMPLE IRA contribution limits are more complicated than the contribution limits for SEP IRA, traditional IRA or Roth IRA. Below is information on how much an employer or employee can contribute to a SIMPLE IRA account. Each SIMPLE IRA plan can be different based on how the employer set it up.

What are the SIMPLE IRA contribution limits?

The amount of contribution to a SIMPLE IRA plan allowed by the IRS depends on the type of contribution made to the SIMPLE IRA.

Salary reduction SIMPLE IRA contributions limit

The employer can make a contribution to the SIMPLE IRA of an employee for up to $10,500 for the tax year 2007. Additional elective deferrals can be contributed to a SIMPLE IRA plan if:

• the employee is 50 by the end of the tax year, and
• no other elective deferrals can be made for the employee to the plan for the year

Then the most additional elective deferrals can add to the SIMPLE IRA contribution is the lesser of:

• $2,500 or
• the employee compensation for the year reduced by the other elective deferrals for the year

Matching employer SIMPLE IRA contributions limit

Some employers will make matching contributions to the SIMPLE IRA to the amount of salary reduction or contribution by the employee. The cap on the matching contribution to SIMPLE IRA plan is 3% of the employee's total compensation for the year.

Nonelective employer contributions limit to SIMPLE IRA plan

If the employer chooses to make nonelective contributions to SIMPLE IRA plan, the contributions must be 2% of the employee's compensation for the year. For 2007, only $225,000 of the employee's compensation can be taken into account to calculate the contribution limit for the SIMPLE IRA Plan.